Certificate of Need Study Bill Passes First House Vote

Legislation allowing more hospital competition faces new hurdles

RALEIGH — Blaming an onslaught of lobbying by hospitals, state Rep. Marilyn Avila, R-Wake, scaled back a bill that would have allowed for an expanded presence of physician-owned ambulatory surgery centers in North Carolina. House Bill 177, which passed an initial floor vote Tuesday 112-2, would shift the legislation to a legislative study committee.

“Every good legislator knows when to roll up their tent and go home, and understand when they are going to lose,” Avila said after the House Health and Human Services Committee approved the study committee proposal.

“When I have legislators who’ve been strong-armed by their local hospitals, which the hospital association has sicced them on every one of the legislators that it applies to, you’re just not going to have the votes,” Avila said.

H.B. 177 initially would have relaxed state certificate of need regulations to allow private surgeons and physicians to establish low-cost, single-specialty, ambulatory surgery centers. If the current bill passes the Senate, a legislative study committee would draft fresh legislation for next year’s short session.

Proponents say those new clinics would reduce costs to consumers and lower state payments for Medicaid recipients and state employees on the state insurance plan.

Under state certificate of need law, hospitals have established clinic monopolies. They receive higher Medicaid and Medicare reimbursement than physicians. That higher rate is received whether hospitals perform surgeries in a hospital or at one of their satellite clinics. Under Avila’s original bill, hospitals would not have been able to charge that higher reimbursement rate at off-campus clinics.

Getting certificates of need are a laborious, expensive, and time-consuming process, Avila said. Changing the system to allow doctors and surgeons to compete with hospitals proved equally onerous, she added.

“What we’re going to have to do is educate. It’s a very convoluted, complicated system,” Avila said.

“It’s not what we had intended at first but I think in the long run it may end up being a good thing for health care for both doctors and the patients,” Cathy Wright, a lobbyist for the North Carolina Orthopaedic Association, said of HB 177 becoming a study bill.

“Probably the most frustrating thing about this particular issue is CON is a hard issue for people to understand. There were quite a few new legislators who never had to deal with the issue so it meant for a lot of time educating them,” Wright said.

“In the end, despite how much effort we put into them, I’m not sure how many of them understand it,” she said.

“CON is a confusing issue. That being said, a lot of them in the beginning said to me they were in support of free market health care, they were in support of decreasing regulation, they were in support of decreasing costs for the patients,” Wright said.

“But many of them heard from their hospitals back home about how bad this would be for them,” she said. “We got a lot of pushback.”

Wright disputes the hospitals’ contention of harmful effects. The original bill would have excluded competition only in areas where smaller hospitals with thin financial margins operate, she said.

“It would have taken effect in areas where hospitals have a greater market share and probably could have withstood some greater competition,” Wright said.

Attempts to contact the North Carolina Hospital Association for comment were not successful.

Avila’s bill resulted indirectly from a House Select Committee on Certificate of Need Process and Related Hospital Issues that conducted hearings on the complex CON system last year. But she rejected the notion that her bill would plow through the same ground as the previous study.

When the last study committee issued its recommendations, it had little impact on hospitals, she said.

Some of the language put into that committee’s final study report “was to force [hospitals] to come to the table and talk,” Avila said. In the past, hospitals used their combined clout to go behind closed doors with legislative leaders and push to include or delete items from proposed legislation, she said.

“And basically that was my challenge when I asked the committee to support the bill that came out of the CON [committee]” that more directly affected hospitals, Avila said.

“If they don’t have to defend themselves or feel threatened, they’re not going to talk about it. They’re not going to raise the issue on their own. That’s why my motivation as much as anything else was to get the kind of conversation we got,” Avila said.

The hospital lobby “raised some valid arguments” about how the Patient Protection and Affordable Care Act [aka Obamacare] will affect hospitals starting in 2014,” Avila said.

“They’re using ‘oh this poor-me mouthing’ as much as possible to get pity and keep us away as much as possible from changing anything that applies to them, whether it’s opening up the CON competition with ambulatory surgery centers, or assessments, or anything we’ve got the ability to change that they see as a negative for them,” she said.

One defense hospitals mounted was that they must, by law, provide charity care, so they are at a disadvantage.

“Anybody else that wants to offer a service that a hospital offers is going to have an advantage, which is why we made it very specific in the bill that there was going to be a requirement for charity care [to] level the playing field,” Avila said.

“The confusing thing about it is each hospital is allowed to define for it[self] what charity care is. So when you look at those numbers, it’s like a fruit basket,” Avila said.

“I’d love to see some standardization so when we say charity care for this hospital, it is [care for] the uninsured and the underinsured. It does not include Medicaid, it does not include Medicare. That would be a different number. I think we’d get a much different picture of what’s happening in terms of charity care and who’s giving it,” she said.

“It’s frustrating that you have the belief that I do that market will do the best in terms of what people need and where they need it,” Avila said.

But she insisted she is not discouraged by the setback and will continue to push for reform to inject competition into the system. The study, she said, would more closely examine “the barriers that we’ve got at both the federal level and state level to moving to a more … market-based type delivery of service.”

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.